Blogging on corporate and securities law issues affecting companies in North Texas and around the state.
Exploring legal issues related to mergers and acquisitions, public offerings (including IPOs), private placements, venture capital, entity formation and corporate governance.

Tuesday, March 22, 2011

I was both a speaker and a participant yesterday at the "Seed Investing as a Team Sport" seminar, which was part of the three-day World's Best Technology Innovative Showcase in Arlington, Texas. My presentation, "Structuring the Deal" reviewed key terms of seed investment and venture capital transactions. Our training director and moderator, Jim Troxel, did an outstanding job facilitating a lively and informative discussion with a ton of audience participation. Special thanks to Development Capital Networks for inviting me to participate in this event.

As our economy starts to turn around, it is easy to get excited about the many opportunities for start-up ventures and their investors to work together to develop the Next Big Thing!

Thursday, March 17, 2011

In honor of Cliff Clavin, the postman from television's "Cheers," I am starting a new feature on this blog called "Little Known Facts." We'll explore nuances of corporate and securities law that may be somewhat obscure but (hopefully) pretty interesting.

Today we'll explore the following question: Can shareholders of a Texas corporation demand to see the corporation's financial statements? Yes they can.

Section 21.219 of the Texas Business Organizations Code (TBOC) provides: "On written request of a shareholder of the corporation, a corporation shall mail to the shareholder: (1) the annual statements of the corporation for the last fiscal year that contain in reasonable detail the corporation's assets and liabilities and the results of the corporation's operations; and (2) the most recent interim statements, if any, that have been filed in a public record or other publication."

In addition, a person who has been a shareholder for at least six months or who holds at least 5% of the outstanding shares of the company may examine and copy the corporation's books, records, minutes, and share transfer records for any proper purpose, subject to any contrary provision of the corporation's governing documents. That provision is set forth in Section 21.218 of the TBOC.

Wednesday, March 9, 2011

The purpose of this post is to expose the myth that a person may own "freely tradable" shares of stock. In truth, the term "freely tradable" is not used anywhere in state or federal securities laws for a simple reason - that concept does not exist under the law!

Every sale of stock in the United States is either (1) registered, (2) exempt from registration, or (3) illegal. Generally, sales of stock may be registered, but not the shares of stock themselves. Therefore, even if a person acquires stock in a registered offering, that person cannot "freely trade" those shares. Each transaction in shares of stock must be individually evaluated to determine whether or not the shares can be further traded without registration.

Most open market sales of stock (such as buying or selling shares of stock traded on the New York Stock Exchange) are exempt from registration by virtue of Section 4(1) of the Securities Act of 1933, as amended, which exempts "transactions by any person other than an issuer, underwriter, or a dealer."

The term "freely tradable" is often used to describe restricted securities which may be sold in accordance with Rule 144. An explanation of Rule 144 is beyond the scope of this blog post, but it should be noted that compliance with Rule 144 can depend upon a number of factors, such as whether or not the seller is an affiliate of the issuer, the volume of recent sales made by the seller, whether or not the sales are made through a broker, whether or not current public information about the issuer exists, the length of time the seller has held the shares, etc. Accordingly, it is very difficult to declare that any shares are "freely tradable." One may be able to say that a particular sale may be made in compliance with Rule 144, however.

About Me

I am a partner with the law firm of Cantey Hanger LLP and a member of the firm's Corporate and Securities Section. My practice focuses on mergers and acquisitions, securities, corporate finance and general corporate matters.
I earned my J.D. from Harvard Law School in 1998, where I was Senior Editor of the Journal of Law and Public Policy. I earned my B.B.A., magna cum laude, in Accounting from Texas Tech University in 1995.

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